1 World economy on only one engine (Nouriel Roubini in The Guardian) The global economy is like a jetliner that needs all of its engines operational to take off and steer clear of clouds and storms. Unfortunately, only one of its four engines is functioning properly: the Anglosphere (the US and its close cousin, the UK).
The second engine – the eurozone – has now stalled after an anaemic post-2008 restart. Indeed, Europe is one shock away from outright deflation and another bout of recession. Likewise, the third engine, Japan, is running out of fuel after a year of fiscal and monetary stimulus. And emerging markets (the fourth engine) are slowing sharply as decade-long global tailwinds – rapid Chinese growth, zero policy rates and quantitative easing by the US Federal Reserve, and a commodity super-cycle – become headwinds.
The risk of a global crash has been low, because deleveraging has proceeded apace in most advanced economies; the effects of fiscal drag are smaller; monetary policies remain accommodative; and asset reflation has had positive wealth effects. But serious challenges lie ahead. Private and public debts in advanced economies are still high and rising. Rising inequality is redistributing income to those with a high propensity to save (the rich and corporations), and is exacerbated by capital-intensive, labor-saving technological innovation.
Fortunately, rising geopolitical risks – a Middle East on fire, the Russia-Ukraine conflict, Hong Kong’s turmoil, and China’s territorial disputes with its neighbors – together with geo-economic threats from, say, Ebola and global climate change, have not yet led to financial contagion. So the global economy is flying on a single engine, the pilots must navigate menacing storm clouds, and fights are breaking out among the passengers. If only there were emergency crews on the ground.
2 End of US QE is whimper, not bang (Robert Peston on BBC) As the Fed Reserve ends quantitative easing, those who prophesied that these trillions of dollars of debt purchases would spark uncontrollable inflation have been proved wrong. But QE could still prove toxic. The most striking thing about quantitative easing, the unprecedented massive purchases of debt by the central banks of the big rich developed countries, and especially by the US Federal Reserve, is how anti-climactic it has all been.
When QE started at the end of 2008, many were the voices warning that the economy of the world was heading into dangerous uncharted territory. Well, on the day the US Federal Reserve brings to a close this intriguing chapter in the long and not always distinguished history of central banking, by ceasing its exceptional purchases of bonds, it may be fair to say that QE has all been a bit dull – or 50 shades of grey, without any sex.
That said. we have probably learned two things. First, that if there has been inflation, it has been in asset prices, rather than in items of everyday consumer expenditure. And by boosting share prices, the cost of capital was cut for businesses, and should have stimulated investment by them.
When launched, QE was billed as a big, bold and imaginative way of restarting the global economy after the 2008 crash. t probably helped prevent the Great Recession being deeper and longer. But by inflating the price of assets beyond what could be justified by the underlying strength of the economy, it may have sown the seeds of the next great markets disaster.
3 Fixing India’s graft problem (Amrit Dhillion in Straits Times) Only the prospect of jail frightens corrupt Indian politicians. They are impervious to all other humiliations. Jayalalithaa Jayaram, the colourful chief minister of Tamil Nadu and one of India’s top women leaders, recently experienced one such.
A court found Jayalalithaa guilty of corruption on Sept 27, in a case that began 18 years ago when income tax officials raided her home. This is the first time a serving chief minister has been convicted under the Prevention of Corruption Act and gone to jail. The sentence is four years in jail. She will also be disqualified from holding office because the Supreme Court last year ruled that convicted MPs cannot continue as MPs. She has also been fined one billion rupees.
Hardly any Indian politician has gone to jail for corruption. If this ruling is to do any good, it will be to deter other corrupt leaders. But an 18-year trial? There lies the problem. Who is going to be deterred when it takes so long for the wheels of justice to get going?
Recent developments in India have indicated a rising intolerance for corruption. Why does India have fewer than 15 judges per million population, compared with the US, which has over 100 judges per million? Is it really impossible to produce more judges? As a result of these flaws, India has 30 million pending cases clogging the system. According to legal experts, it will take 466 years for the Delhi High Court alone to clear its backlog.
If one reason had to be singled out to explain the audacity of politicians over corruption, it must be this. Apart from the Law Ministry needing to reform the legal system to make it faster, India could set up fast-track courts to handle corruption cases involving MPs or civil servants. Only fast and draconian punishment can be effective in dealing with the greed psychosis that afflicts Indian politicians.